The UK is leaving the EU. The Schengen area is on the point of collapse. The Italian banking sector is in danger of re-sparking the Eurozone crisis. Populist groups across the EU demand an end to austerity, restrictions on migration and other EU-incompatible policies. What should the EU do now?
First, it should grasp that the key existential threats to it are political, not financial, and come from the core not the periphery. If the EU collapses it will be because France or Germany or Italy withdraw, not because Greece or Finland withdraw. And withdrawal will be a political decision. Financial forces can affect political decisions, but they cannot create them.
Second, it should grasp that populist movements are the products of economic and governance failures. The solution to them is not marginalisation, drawing together or punishing anyone. It is addressing those economic and governance failures. And the only route to a solution lies through addressing these issues. They will not go away simply by “kicking the can” and buying time. And they will be made much worse (potentially fatally so) if the EU were to engage in further economic self-harm — e.g. by getting into any kind of row with the UK over Brexit.
Third, the EU must embrace the reality that the economic and governance failures that threaten it are the product of an unsustainable half-way house. The EU could perhaps have worked for many decades as a late-1980s-style single-market-focused economic union between fairly similar GDP-to-capita Western European countries. But the EU chose two huge changes. It chose to absorb Eastern Europe and it chose to create the euro and the Schengen area. Having set off down that path, it can only succeed and endure if it carries those decisions through to their logical conclusion in political union.
Populist political movements complain about things the EU does and many call for powers to be returned. But it would be a mistake to believe that the answer to this is to slow down the pace of EU integration. The populist demand for the return of powers gets a hearing because those powers are not used well, not (outside the UK, at least, and to a lesser extent in France) because EU citizens object to the principle. An attempt to stall or take a “tea-break” from integration could threaten the whole project.
It’s important to grasp that EU integration is, at this period of Eurozone and Schengen crisis, not simply a matter of who wields power. It is, rather, a matter of what can be done at all. To address the Schengen crisis there need to be EU external border guards and a European “FBI”. That’s more integration.
The alternative isn’t keeping things as they were. The alternative is introducing internal borders in the Schengen area and thus destroying it. To address the Eurozone crisis there needs to be a Eurozone Treasury that can issue Eurozone sovereign debt that can be backed by the ECB and there needs to be year-after-year support grants provided for low-growth Eurozone regions funded by Eurozone-wide taxes. That’s more integration.
The alternative to that is not keeping things as they are. The alternatives are either destroying the euro by having key members (in particular, Italy) leave because there is no growth and unsustainable debts or destroying the euro by having key members (in particular, France or Germany) leave because debts are pooled and populist parties come to power as a consequence. The status quo cannot stand. It is either more EU integration or dismantling the EU’s flagship programmes. Choose.
Much the best choice is surely deeper integration. The main blockages to securing deeper integration are:
(a) Scepticism amongst populations that more powers will be used well — That one just has to be faced down and proven wrong by getting the powers and using them well. The idea of “taking populations with you” or “proceeding slowly, at a pace populations can accept” are non-starters in the current political environment. The current power mix is one of impotence and failure. The longer the EU fails, the less populations are going to believe it could succeed.
(b) The multi-speed EU — Having significant EU members that are not members of the euro or the Schengen area has created considerable institutional and governance challenges for the project. For example, the EU has a regional policy — structural funds. But these are funded from the EU’s overall budget, so non-Eurozone countries such as the UK fund regional grants. If these grants were greatly expanded to address the Eurozone’s problems, that would necessitate large increases in the UK’s Eu budget contribution, which the UK would resist.
Mercifully for the EU, the UK has now solved that problem by voting to withdraw. The EU needs to force other not-fully-involved members to make similar choices. The non-euro EU must end, as must the Continental shelf non-Schengen EU (Ireland, for example, could stay outside Schengen because of its island status).
This is probably the key and most urgent response the EU should make to Brexit. It should state clearly and unequivocally that the way forward lies in deeper political integration and that the EU’s economic challenges will be met by giving the EU more powers and better governance procedures to wield them. It should state that that can happen only if all EU members engage fully with all (or almost all) EU programmes. If you want to be in, you must join the euro. If you want to be in, almost all of you must join Schengen. If you don’t want to do these things, say now, so all can plan for your orderly and amicable departure.
